The Insolvency Service has called for discussion and consultation on the current regulatory framework for insolvency practitioners (IPs) in the UK. Its stated purpose is to inform the government whether statutory regulatory objectives introduced nearly four years ago by the Small Business, Enterprise and Employment Act 2015 have had the desired impact and to see if further changes are required.
The UK has a complex system of insolvency laws which govern companies that are unable to pay their debts on time. The law aims to rescue companies which could survive, minimise losses and fairly distribute burdens between employees, shareholders, directors and creditors that result from enterprise failure. If a company is unable to be saved it will be placed into liquidation where its assets are sold and the proceeds distributed to creditors in order of priority.
It is the duty of directors to know when their company is unable to trade and to take all steps necessary to prevent insolvency. They are also required to put the interests of creditors above those of shareholders and fellow directors. Directors who continue to trade a company which is insolvent can be held liable for the insolvency of the business and could face legal action from its creditors.
Insolvency practitioners must be authorised by one of the Recognised insolvency companies uk Professional Bodies (RPBs). An RPB must be independent of the insolvency profession and must have an effective complaint handling system. There are currently 16 RPBs in the UK. An RPB must review complaints before it can refer them to the Insolvency Service for investigation. Insolvency Service investigations into IPs can result in prosecution, fines and bans.
The Insolvency Service is an executive agency of the Department for Business, Energy and Industrial Strategy (BEIS). Its mission is to deliver economic confidence by supporting those in financial distress, tackling corporate wrongdoing and maximising returns to creditors. The Insolvency Service’s work is funded by the UK taxpayer.
When a company becomes insolvent it can’t afford to pay its debts on time and may not have sufficient assets to cover its liabilities. It can’t repay its loans or mortgages, nor meet its tax obligations. The Insolvency Service can help a company through its various procedures designed to save it, such as administration, a company voluntary arrangement and administrative receivership. These procedures allow the director to reach an agreement with creditors to accept less in repayments in the hope that the company can continue trading.